Moody’s might cut Interoute

Moody's Investors Service said it placed Interoute Communications Holdings SA’s B1 corporate family rating and B1-PD probability of default rating, along with Interoute Finco plc’s €640 million term loan B, on review for downgrade.

The action follows the announcement by both GTT Communications, Inc. (B2 under review for downgrade) and Interoute that GTT signed a definitive purchase agreement to acquire Interoute for about €1.9 billion ($2.3 billion) in cash.

GTT will raise roughly $2 billion in new debt and $250 million of equity to fund the purchase, to be paid in cash at closing, which includes repaying Interoute's existing debt. That debt is mainly comprised of a €640 million term loan B due 2023.

GTT expects the combined company's pro-forma reported net debt to adjusted EBITDA will be about 5 times to 5.5 times and that the transaction should close within three to six months.

The agreed offer price implies a pre-synergies acquisition multiple of roughly 11.5 times Interoute's adjusted EBITDA (for the 12 months to Sept. 30, 2017) and an estimated post-synergies adjusted EBITDA multiple of 7 times to 8 times.

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